Since launching Fairer Share in the spring of 2020, we have been inspired by the 120,000 households who have signed our petition calling for reform. These have come from all walks of life – young families struggling to get by in the face of rising Council Tax bills, hard-working families in tenanted accommodation, grandparents wondering how their grandchildren will find a way onto the property ladder, the housing industry looking for alternatives to Stamp Duty.

In March we received this letter from Jesse Norman MP who has the important role of Financial Secretary to the Treasury. We have responded to his comments in a Q&A format below. Jesse Norman’s response shows the importance of our work and the need to continue the fight for a fairer property tax system!

Jesse Norman MP

Thank you for sending the briefing from Fairer Share in January on replacing Council Tax and Stamp Duty Land Tax (SDLT) with a Proportional Property Tax.

The data provided in the briefing by Fairer Share which you forwarded gives a very useful insight into the thinking behind the proposed new package, and any serious proposal that purports to reduce tax for the majority of people and improve economic efficiency while remaining equitable and revenue neutral overall is of obvious potential interest.

Fairer Share

Thank you. Our data and analysis clearly show that Stamp Duty hinders mobility and Council Tax is increasingly a service charge for the wealthy and a rising wealth tax for low and middle-income households. 

Across England around 76% of households would benefit under a proportional property tax, with households paying £435 less property tax a year on average.

There are 78 constituencies where over 99% of households would benefit from moving to a proportional property tax. Many of these are in the north of England and the midlands but there are also plenty of southern seats that would benefit from the change.

We are grateful for the endorsement for a proportional property tax by leading economists in the national media including Martin Wolf at The Financial Times and Russell Lynch at The Daily Telegraph.

In his recent op-ed piece in the Daily Telegraph, Aaron Bell, who took Newcastle-under-Lyme from Labour for the Tories at the 2019 election, said: ‘…abolishing Council Tax and Stamp Duty and replacing them with a fairer property tax is the right thing to do for millions of people up and down the country. It is also the right thing for the Conservative Party to do if we are serious about delivering to those who voted Tory for the first time in a generation.’

Jesse Norman MP

However, the proposal would involve a radical overhaul in existing tax arrangements, and inevitably this would bring disadvantages as well as advantages. Despite its limitations, the current system has evolved over time. It is familiar, well-understood and factored into people’s planning. 

Fairer Share

Council Tax may well be familiar to the Government and factored into planning. That does not mean it is without harm. As recently noted, by Citizens Advice: “Council Tax is one of the bills that people have been struggling with the most. We estimate that over 3.5 million people are currently behind on Council Tax.” 

This is 5% of the population struggling to pay their bills, with families facing debt-collectors and having to face unnecessary pain because of the regressive nature of the tax. 

Familiarity and planning are indeed important. A PPT would, in time, also become familiar and very easy to understand due to the simple flat rate of 0.48%. It is much simpler to plan for because those with assets and wealth are able to plan in a way that the poorest in society are not. An argument for inertia on these grounds could be made for all taxes and ignores the harm caused by Council Tax. 

Jesse Norman MP

Thus, as well as expected costs and benefits, any radical change would almost certainly involve unintended consequences, some negative and potentially serious. 

Fairer Share

Of course, no system of property taxation will make everyone happy. But a scenario in which a small number of homeowners have enjoyed a large increase in property value and a much smaller rise in their tax bill is surely preferable to the current system under which many hard-working tenants face 5% annual increases in Council Tax whilst not benefitting from a commensurate increase in property value.

Former Governor of the Bank of England, Mark Carney, in his recent book – “Value(s), Building A Better World for All” – explains that distributional impacts are explicitly taken into account in cost-benefit analysis conducted by the US federal government. This has spawned the doctrine of prioritarianism in which the social goal is to maximise welfare but with priority given to the most disadvantaged. Mark goes on to say, “The allocation (or ‘incidence’) of costs and benefits matters, and even if ‘losers lose more than gainers gain in monetary terms, we cannot exclude the possibility that the losers lose less than the gainers gain in welfare terms.”

Or in other words, an extra £1,000 means less to say Roman Abramovich than £500 does to someone who is struggling to pay their Council Tax bills. Mark explains, “In part, this can be explained by the diminishing utility of money. There is widespread evidence that, above certain thresholds, small additional monetary gains or losses are relatively immaterial from a welfare perspective, whereas for the least well off they are material.” 

With a PPT, the 24% of households who will pay more are the asset rich – those lucky enough to live in large houses (£800,000+) in London and the south east. Those lucky enough to have second homes and weekend retreats will pay more. Foreign investors will pay more.

If the Conservative Party is serious about levelling up, not just paying lip service to it, these trade-offs have to be made. Our proposal is not radical and the cap on the increase of £1,200 per year limits any losses to a sensible and politically palatable amount. Proportional Property Tax is a moderate, conservative but progressive, reform with cross-party support and if this is too heavy a lift then I fear this Government may have little to show to its “Blue Wall” when election time arrives in three-years’ time. 

Jesse Norman MP

All these things are matters of potential concern. For the sake of clarity, I set out some more specific thoughts on these issues below. 

First of all, the briefing acknowledges that removing Council Tax and SDLT and replacing them with a proportional property tax will raise annual taxes for many households. Even with the proposed cap, it is important to note that this would risk being perceived publicly similarly to a ‘mansion tax’, a significant and unanticipated increase in bills for families and pensioners who have saved and improved their homes. 

Fairer Share

We respectfully but strongly disagree. This is not a tax increase – overall our policy is revenue neutral. We are scrapping both Stamp Duty and Council Tax, replacing both with a fairer proportional system. 

Nor is it a wealth tax. On the topic of a proportional property tax, the Daily Telegraph’s Economics Editor Russell Lynch wrote: ‘this is not a “mansion tax” or anything like it.’ Neither is it in keeping with a wealth tax, which is generally understood to be imposed upon an individual’s entire net wealth. 

Those living in houses valued at £500,000 or less (90% of all households in England) are likely to see a reduction in their tax bills because the future proportional property tax will be less than their current Council Tax payments.

In no meaningful way is it a mansion tax either. Singapore, hardly a bastion for socialism, has a much more aggressive 4% rate on owner-occupied land. We are asking this government to place the tax on the value on the property, not the land, and to do so at a rate 8 times lower than Singapore. 

On home improvements the rate itself negates this problem. With a flat tax of 0.48%, this equates to less than 1/200th of any increased value from home improvements. Such a payment would be much less than the 20% VAT rate charged on materials, so a proportional property tax at 0.48% per year is certainly no more of a disincentive to improve one’s home than VAT, which is charged at 20% and is paid upfront.

Jesse Norman MP

On the policy design itself, Council Tax is designed, as you will be aware, to help pay for the cost of local services. These services are used by everyone, including those that rent a property, and the fairness of relieving renters from this tax should be considered. There is also an obvious concern that relieving every household that rents its home from paying this tax, and placing the liability on the property owner, would simply lead to landlords increasing rent to compensate for the tax rise. Reliefs and exemptions already exist for those who are struggling to pay a Council Tax bill.

Fairer Share

Yes, property owners are very likely to pass some or all of the tax down to the tenant through higher rent. This is obvious and expected but it is important to keep in mind that 75% of properties will see a reduction in Council Tax. 

Therefore, it is likely that the landlord will pay less property tax than the tenant is currently paying in Council Tax. As a result, the tenant will receive a net gain as future rent (incorporating the proportional property tax) will still be less than the current rent plus Council Tax. This means that the landlord maintains their yield from the property and the renter has lower bills, except in the cases of the extraordinarily wealthy. 

Our view is that households are already paying sufficient property taxes – the problem is that the wrong households are paying the wrong taxes at the wrong times. The current inequity exists within individual constituencies, between regions, and between the generations. The 2019 Conservative Party manifesto promised to “redesign the tax system so that it boosts growth, wages and investment and limits arbitrary tax advantages for the wealthiest in society.” Reforming property taxes should be part of the solution.

Jesse Norman MP

Turning to the proposal to replace SDLT, SDLT has been designed as a proportionate tax, which is paid by people who can afford to purchase a property. Those who can afford to purchase higher value properties pay more, and purchases of additional properties incur higher rates, as will purchases by non-UK residents from 1 April 2021. Furthermore, the Government has relieved first-time buyers who purchase a property of £500,000 or less from paying SDLT on the first £300,000 of the property’s value. 

Fairer Share

Yes, the first-time buyers SDLT discount is indeed helpful but it does nothing to facilitate young families moving up the property ladder nor does it incentivise older generations to downsize to property sizes more appropriate for their life-style. Stamp duty stops families moving because it taxes at the point of transaction, thereby making the housing market less efficient. Helping people move has huge economic and social benefits, a point repeatedly made by yourself and the Chancellor. 

Jesse Norman MP

In 2019-20, residential SDLT raised £8.4bn, which is rather more than the £4.2bn suggested in the briefing. 

Fairer Share

For clarification, the £4.2 billion mentioned in the briefing relates to the lost revenue from primary homeowners. We recommend retaining SDLT for second homes, buy-to-lets and foreign buyers. The net revenue therefore remains the same. 

Jesse Norman MP

Despite the significant revenue raised, 34% of transactions did not involve payment of any SDLT at all because they fell under the starting threshold or a first-time buyer. Any government would need to consider very carefully the impact of replacing such a secure tax. 

Fairer Share

Our policy is revenue-neutral. Revenue from the Proportional Property Tax (£36.7 billion) recoups lost revenue from for the abolition of SDLT for primary homeowners (£4.2 billion), removal of Council Tax (£31.9 billion) and miscellaneous adjustments (£0.6 billion).  In addition, HM Treasury (and local authorities) will have flexibility to increase or decrease the tax take in future years by adjusting the 0.48% rate. 

Jesse Norman MP

Finally, in relation to the delivery of a Proportional Property Tax and the necessity for frequent revaluations of properties, I understand your concern about the current system of basing bills on 1991 values. By way of context, it is worth pointing out that a full revaluation of every property in the UK would be expensive to undertake, and many final values reached would be controversial. It would involve a huge upheaval, and would also risks accusations of being unfair or inconsistent as a result of in-year or regional disparities in the property market. 

Fairer Share

At some point the Government will have to undertake revaluation. Using 1991 house values will just entrench and worsen existing inequalities and seem ever more outdated and ridiculous. 

The best reason to undertake a valuation is to introduce a better system that brings with it serious political upside by putting cash in the hands of 76% of households. Letting this problem slip into the future is short-termist and will be harmful to the Government and the Conservative Party’s manifesto commitment to level up

We commissioned the well-respected International Property Tax Institute (IPTI) to write a 200-page deep dive into the issue of valuation. Other jurisdictions manage to provide accurate valuations of the capital values of their properties – Netherlands, New Zealand, British Ontario, New York. For a country that prides itself on data analytics and AI your concerns around valuation are insufficient. 

In IPTI’s view, the introduction of PPT poses no insurmountable technical or valuation issues. As we have already stated, much of the rest of the world operate similar systems and they have proved reliable and sustainable.

There are implementation costs to be considered but, in comparison with the potential revenue to be derived from PPT, they would appear to provide good value for money in terms of cost/yield ratio. The Government already collects the requisite data at the VOA. To undertake a PPT it is a case of using the data correctly.

The IPTI point out “the biggest problem likely to be encountered in connection with PPT will be at the political level. Experience has shown that many UK politicians and governments have regarded council tax reform as an area to avoid but, in IPTI’s view, the present system does not operate as effectively or as equitably as many other property tax systems around the world, so there are sound arguments in favour of reform.”

Jesse Norman MP

For these reasons, the Government has no plans to introduce a Proportional Property Tax. But despite these concerns, I and my colleagues in the Treasury remain interested in the work of the PPT campaign, and I am very grateful to Fairer Share and to you for sharing this proposal. As you know, the Government keeps all aspects of the tax system under review, and we warmly welcome serious and constructive contributions from outside organisations and campaigning groups.

Fairer Share

That is a pity. Council tax is clearly broken. Everybody in government knows this. 

In today’s Financial Times, the editorial board wrote “Taxation of property is incoherent, notably in the UK: the regressive burden of council tax is proportionately much higher for owners of cheaper properties than more expensive ones. Moreover, valuations have not been updated for England since 1991. Reform is urgent: this should consist of a tax proportional to the property value, regularly updated valuations and the capitalisation of the tax for elderly residents, with the balance paid out of the estate.”  As you know, Fairer Share has incorporated all three recommendations – proportionality, regular valuations and capitalisation.

The remarkable thing is that no one has managed to find a way yet to reform it, while the tax continues to hit our poorest residents hardest, pushing them into poverty and making it harder for councils to raise funds for critical local services.

Despite unemployment surging due to coronavirus, a majority of councils are preparing to bump bills up by an unprecedented 5%, inflicting maximum pain on millions of already hard-pressed households.

Our solution is very similar to that put forward by leading thank tanks such as Institute for Fiscal Studies, IEA, IPPR, Resolution Foundation, Onward, Centre for Policy Studies. We have combined the best features of each. This sustainable and progressive policy benefits the exact voters your party so desperately wishes to support. 

By sitting on the sidelines of this debate, recognising that there are problems with Stamp Duty and Council Tax but not offering up a convincing alternative, you are allowing individuals and families to fall into debt that you know is unnecessary and unfair. And you are forcing councils to hit their own poorest residents in order to maintain their budgets.

The arguments in your letter to Kevin Hollinrake MP are, in our view, flimsy and insufficient to negate the obvious benefits of our solution. They are, perhaps, reflective of the Government’s inertia when it comes to actually carrying out the work of levelling up. My personal fear is that because your party is doing so well in the polls you will do the bare minimum to level up. 

We hope that you will reconsider your position in light of our responses.

Andrew Dixon

Chairman & Founder

Fairer Share